Thursday, President Biden addressed the media regarding his glorious fix-all for our “BindenFlation” egregious gasoline prices, which happens to be nothing more than political grandstanding. What’s his grand plan to turn the spicket on and gas prices down? Tap into U.S. Emergency oil reserves.
Duh…I don’t think this is classified as an emergency. But wait: maybe it IS an emergency, one fueled by the ignorance of the Commander In Chief regarding the fossil fuel industry.
Our problem, according to Joe, is a combination of U.S. oil companies hoarding oil to purposely raise prices so they can get filthy rich along with Putin’s invasion of Ukraine, which definitely added to the problem. But the problem is NOT due to the actions of the oil companies. In small part, Putin IS involved. But the major issue is the stupidity of this Administration at not understanding the governing process!
No decision from the White House happens in a vacuum. When Biden, on Day One, pulled the plug on the XL Pipeline and announced he’d cancel drilling on federal lands, his actions began the slide in the fossil fuel industry that brought us to the place we are today.
Rather than my personal pontification on the subject, let’s simply look at West Texas. The Permian Basin produces the lions’ share of oil the U.S. produces in total. Let’s look at what Biden’s executive actions regarding fossil fuel did to that massive source of oil and what will be required to “fix” the problem and get back to where we were during the Trump Administration.
The REAL Problem In Oil
After Russia invaded Ukraine last month and the U.S. and major energy companies boycotted Russian oil and gas, some politicians quickly called for cranking up American energy production to fill the void.
A Republican member of Congress attended President Joe Biden’s State of the Union address earlier this month wearing a shirt emblazoned with “Drill baby drill.” U.S. Rep. Filemon Vela, a Democrat from Brownsville, Texas, tweeted, “Save Ukraine! Unleash American Oil and Gas!”
And U.S. Rep. August Pfluger (R-TX), who represents the heart of Texas’ oil patch, has printed red, white, and blue baseball caps with an oil pump jack next to the words “Midland over Moscow.”
“The energy producers of [West Texas] and America are READY to produce the energy our nation and allies need!” Pfluger wrote on Twitter.
But in Texas’ Permian Basin — the nation’s most productive oil region and the place that would have to lead any jump in U.S. production — people in the industry, energy analysts, and local leaders say there’s no quick or easy way to make that happen.
Cranking up production requires more workers, materials, and money, and people in the industry say they’re facing the same labor shortages and supply chain issues that have plagued countless businesses throughout the COVID-19 pandemic. On top of that, they say Wall Street investors have become more hesitant about pouring money into fossil fuels, and the Biden administration’s policies are hampering the oil and gas industry.
“It’s hard to get pipe, sand, crews for drilling rigs, truck drivers,” said Mike Oestmann, CEO of Tall City Exploration, a company that drills oil wells in West Texas and has two active rigs that drill 32 wells per year combined. He said the scarcity of supplies, equipment, and people “is unlike anything I’ve ever seen.”
He said frac sand — a key ingredient in the hydraulic fracturing process — has been tough to find due in part to labor shortages, even though much of the supply comes from Texas. The price of steel has increased so much that supply shortages make it hard to get pipe for drilling wells. Oestmann said his company has no plans to add more drilling rigs, but he said it probably wouldn’t be able to find the supplies to do so even if it did.
“And I talked to a guy yesterday — a bigger company than us — trying to ramp up his operation to six rigs, and he goes, ‘I don’t know if I can get all the things I need to do that,’” Oestmann said.
John Volke, CEO of Crew Support Services — a company that houses oil field workers in temporary quarters known as “man camps” — says his company has filled every one of its 1,500 beds in the Permian.
“Every one of our clients is trying to hire 20 to 40 people — field hands, labor for rigging pipe,” Volke said. “I don’t know where these people went to work, Amazon?”
Oestmann said when the demand for oil and gas plummeted at the start of the pandemic, many oil field workers got out of the industry for good.
“We quit drilling for a year, a lot of people slowed down,” Oestmann said. “All those people that were working in the field, a lot of them just said, enough’s enough. I’m out.”
Juan Cano left the industry in 2019 and isn’t returning.
The 57-year-old has worked many jobs over the years — driving trucks, laying asphalt, and now fixing vehicles at a Midland auto shop. Like many people living in the Permian Basin, he’s been lured into oil field jobs during previous booms. But even with oil-related businesses desperate for workers and the price of oil topping $100 a barrel following Russia’s invasion of Ukraine, Cano said the appeal of more money isn’t strong enough this time.
“I don’t want to go back into that up and downswing,” Cano said last week outside the auto shop. “It’s not stable, especially now with everything going on in the world.”
Replacing Russian Oil?
The Biden administration announced a U.S. boycott of Russian oil on March 8, but only about 7% of U.S. oil imports come from Russia. Many other countries like Britain and Canada, plus some major energy companies like ExxonMobil and Shell, have also stopped buying Russian oil. The International Energy Agency estimates that by April, 3 million barrels per day of Russian oil production could be off the global market “as sanctions take hold and buyers shun exports.”
But nearly all European countries that rely heavily on Russian oil haven’t followed the U.S. lead, and Biden hasn’t pushed other countries much on the issue for fear that such a boycott could hurt the world economy more than it hurts Russia.
The world consumes around 100 million barrels of oil per day, and Russia produces about 11.2 million barrels per day, making it the third-largest producer behind the U.S. and Saudi Arabia. The IEA, which was formed after the 1973 oil crisis to ensure a steady worldwide energy market, said the repercussions of Russia’s invasion are likely to grow over the next several months as summer driving season begins.
“The world may well be facing its biggest oil supply shock in decades, with huge implications for our economies and societies,” said IEA Executive Director Fatih Birol, citing the uncertain future of Russian supplies on the global market as the war continues and sanctions against the nation mount.
In the U.S., no place drills for oil as much as the Permian Basin. As of March 11, the region had 316 oil rigs in the ground — the number continually flashes on a large screen in downtown Midland along with the current temperature. According to the Federal Reserve Bank of Dallas, the rest of the U.S. had 212 rigs. (Each rig can have dozens of individual wells.) The Permian produces more than 5 million of the nation’s daily output of 11.6 million barrels of oil per day. Local officials say the war in Ukraine, which has pushed the oil price up 58% from the start of the year, will boost profits for the oil and gas already being produced in the Permian Basin.
“When the world’s supply is interrupted, which it is, it makes our product that much more important,” Bobby Burns, president of the Midland Chamber of Commerce and the city’s former mayor, said last week at the Permian Basin Petroleum Museum. “We’re of mixed minds” about the Russia-Ukraine conflict, Burns added. “We know it’s strengthening our bottom line, but it’s bad for the world.”
Before Russia invaded Ukraine, the Permian Basin’s oil production surpassed pre-pandemic levels as the global economy recovered. The U.S. Energy Information Administration forecasts that production in the Permian region will average 5.3 million barrels per day in 2022 and will reach 5.7 million barrels per day in 2023, which would be a record high.
Some Investors Are Less Bullish On Oil Investments
To significantly boost production in the Permian, companies have to secure major financial backing.
Historically, that backing has come from Wall Street, which “has dictated tremendously what goes on in the industry out here,” said Stephen Robertson, executive vice president of the Permian Basin Petroleum Association, adding that drillers decide how much oil to produce “one way or another based on signals [they] are getting from Wall Street.”
Before the pandemic, Wall Street already saw oil and gas as a riskier investment because of environmental concerns, said Steven Beach, dean of the business school at the University of Texas Permian Basin.
For example, the Rockefeller family — which became wealthy and famous in the late 1800s from founding the Standard Oil empire, whose successors include Chevron and ExxonMobil — sold off all its fossil fuel investments in 2015 because of concerns about climate change.
Other investors have cooled on the energy sector for purely bottom-line reasons. More than half of 132 oil and gas executives surveyed by the Dallas Fed said this week that pressure by investors to provide a better return on investments is the main reason energy companies are “restraining growth despite high oil prices.”
Beach said energy company shareholders “were wondering why their companies produced so much oil and gas from 2017-19 and it was so dirt cheap, and at the end of the day, they didn’t really make much money out of it.”
Matt Coday, president and founder of the Oil & Gas Workers Association based in Odessa, blamed the Biden administration’s decisions on energy policy for some investors’ hesitancy to put money into the industry. He said Biden signaled to the industry on his first day in office that he does not support oil and gas by suspending the Keystone XL pipeline.
Coday said the administration’s decision to halt new oil leases on federal land also created a chilling effect within the industry.
“We’ve got [U.S. Treasury Secretary] Janet Yellen asking banks to defund fossil fuel projects,” Coday said, referring to Yellen’s push for banks to align their portfolios with the world’s climate goals, which includes cutting investments in oil and gas.
Still, the world relies heavily on oil and gas. Beach said the ongoing labor shortages, supply chain problems, and financial and political uncertainty create major headwinds for energy companies trying to meet the demand.
“The confluence of these issues are making it more challenging for companies to decide whether they’re going to start ramping up production again,” Beach said.
Energy Exploration and the process for producing and transporting energy products is deep, wide, and complicated. It, just as does most other businesses, is part of a business process that has many moving parts, many of which rely on the success of other parts. Biden obliterated that entire process in U.S. fossil fuel production when he canceled pipeline permits, not just that of XL Pipeline, but others.
He falsely blames oil companies for not drilling on leased land that has been under lease for quite a while. He explains that these companies want to see oil prices increase and go higher! He doesn’t know that every piece of leased land does NOT necessarily have oil or gas underneath the surface. Geological studies must be completed with findings that justify drilling. Then his Department of Justice frequently files suits against those companies to prevent drilling for environmental reasons! And then, the Biden Administration is responsible for issuing drilling permits when companies are ready to drill. And in 2021, the Biden Administration did NOT issue a single drilling permit — the first time that has happened in more than 20 years!
Do you think those oil executives felt good about borrowing tens of millions of dollars for exploration, drilling, and completing wells and then pipelines to get raw oil to refineries? They had NO assurances that Biden wasn’t going to shut it all down again. What investors want to roll the dice on that not happening in THIS administration?
One more thing: yes, the oil companies are making money today. In “Biden World,” that’s a crime — I get that. But if I were a decision-maker at Exxon, Mobil, or BP, I’d pull the plug myself to wait and see if the next president also decides to pander to the climate activists before putting another drilling rig to work on a wellsite.
By the way: I didn’t see anyone stand before the nation during the COVID-19 pandemic — about two years — and detail a plan to subsidize the fossil fuel energy that was actually losing money on every gallon of gas sold. Why did that happen? People weren’t driving — the nation was shut down. Who needs gasoline in that picture?
I cannot fathom who gives this president advice. And, whoever it is, I cannot fathom anyone in such a sensitive role ever advising this president for his actions today in the fossil fuel industry. Unless it’s sabotage — which is actually working –, no one with any knowledge of capitalism and the petroleum industry would dare to suggest the actions this president has taken.
Do you think Joe Biden is stupid? I won’t share my thoughts on that. But I’ll quote one great historical bard who gave us this nugget of wisdom years ago: “Stupid is as Stupid does.” No, that did not come from Plato or Socrates. But it came from an equally qualified man of wisdom.
Who proffered that truth? Forrest Gump!